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1 Pamela Alsterlind Partner, Co-Head Private Real Estate Bastian Wolff Vice President, Private Real Estate Asia-Pacific real estate: local approach in a diverse market Partners Group Research Flash April 2011

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Pamela Alsterlind

Partner, Co-Head Private Real Estate

Bastian Wolff

Vice President, Private Real Estate

Asia-Pacific real estate: local approach in a diverse market

Partners Group Research Flash April 2011

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EXECUTIVE SUMMARY

The Asia-Pacific region contributes approximately a third to global gross domestic product

(“GDP”) and is growing at more than double the pace of the United States (“US”) and Europe.

However, it has yet to receive its proportional allocation of real estate investments from

institutional investors.

Asia-Pacific is an extremely heterogeneous market. Its approximately 50 countries are

different from each other in terms of stage of development, governance systems, transparency

in real estate markets, tax regimes, and official languages used. In terms of size, the region is

vast, covering eight different time zones from India in the west to New Zealand in the east.

Given the diversity in the Asia-Pacific region, Partners Group views the region as a collection of

distinct local markets and broadly classifies them into two categories: developed markets and

emerging markets. On the following pages, we present our views on the current real estate

landscape across Asia-Pacific, with a focus on the markets where we see attractive

opportunities in the medium to long term.

Developed Asia-Pacific

� Japan is facing challenging times in the aftermath of the earthquake. While the physical

damage to properties held by institutional investors is limited, the impact on the overall

business environment is yet to be determined. Economic repercussions could result in

lower occupancy for hotel rooms, retail and office space at least in the short term.

Nevertheless, yields in Japan show a positive spread relative to interest rates making

leverage accretive to investments. Distressed sales due to the financial crisis are

expected to create opportunities to buy stable assets at attractive prices.

� Korea’s real estate market is tightly held by domestic institutions with only 13% in the

hands of foreigners. Thus, relationships are crucial and investors must have a strong

network to access quality deal flow. The secondary market has been an attractive

instrument to access commercial properties at discounts to intrinsic value. While supply

for those assets is higher compared to historical average, we expect new international

grade developments to be positively received by tenants.

� Singapore and Hong Kong are both island economies with limited land. Due to their

space-constrained nature and high external dependency, these two property markets

tend to be more cyclical than others in Asia-Pacific. While capital values in Singapore

and Hong Kong have already recovered from the recent downturn, there are a number

of commercial buildings in these markets that are aged and undermanaged by the

current landlords and offer potential for value-added strategies.

� Australia faces capital constraints in real estate lending. Foreign banks left with high

losses on loan portfolios in the downturn have retreated from the real estate sector. At

the same time, domestic lenders have adopted more conservative practices, creating a

gap between bank finance and equity. Partners Group sees attractive opportunities in

assets that remain capital constrained with a debt recapitalization or mezzanine

investment to fill the gap between bank loans and equity.

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Emerging Asia-Pacific

� India offers attractive development opportunities in the middle income residential

sector backed by strong fundamentals. Foreign direct investments in real estate

development is a relatively young industry in India. While there have been successful

exits in the India private real estate space, foreign investors have had mixed

experiences overall. Partners Group believes risks with investing in India can be

substantially mitigated through structured transactions and by partnering with local

operators.

� In China, Partners Group sees the most attractive opportunities in residential

investments in Tier II cities. We expect volumes and prices for residential properties to

fall over the next 12 months as the government is determined to make housing more

affordable. Partners Group believes this will present another compelling entry

opportunity in a market that has very strong fundamentals over the long term.

� Vietnam’s demand for real estate is underpinned by rapid urbanization and compelling

demographics. In terms of economic growth, the country has emerged as one of South

East Asia's strongest performers. While strong growth came at the expense of double-

digit inflation, Partners Group still sees compelling opportunities, especially in the

residential sector.

Exhibit 1: Asia-Pacific real estate markets

Note: Not to scale

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DEVELOPED ASIA-PACIFIC

Japan: strong yield play – acquire from distressed sellers

Japan is currently recovering from the aftermath of the earthquake. The natural disaster

caused terrible human suffering. In terms of the economic impact, 2011 growth is expected to

slow as a result of power outages, damage to factories and infrastructure. Research

institutions have taken the disaster into account and revised their GDP forecast downward;

however, they have noted that the incident will not stop the economy from its growing trend.

By the second half of the year the post-quake reconstruction efforts will likely result in a boost

to growth. GDP growth estimates average approximately 0.8% for 2011 with a recovery to

2.6% in 2012.

Exhibit 2: Economic forecasts before and after the earthquake

Source: Secured Capital Japan (April 2011)

Similarly, the adverse impact on the institutional real estate market could be short-lived as

well. The area of northern Japan, hardest hit by the earthquake and tsunami, has minimal

institutional real estate ownership. Properties in Greater Tokyo and Osaka have only suffered

minor damages. However, the impact on the overall business environment is yet to be

determined and economic repercussions could result in lower occupancy for commercial real

estate. For example, as fewer tourists and business travellers travel to Japan, demand for

hotel rooms is expected to suffer.

GDP in Japan grew 3.9% in 2010, after negative growth of -1.2% and -6.3% in 2008 and

2009, respectively, as a result of the financial crisis.1 The country faces mounting sovereign

debt and lingering deflation. Japan was replaced by China as the second largest economy in

the world this year. The generally negative perception of Japan and its lackluster economic

outlook hinder investment capital and, as a result, property values have been largely repriced.

At the same time, there are signs of recovery in the underlying property markets. The vacancy

rate for class S (premium quality) office building spaces in Tokyo, as a leading indicator for the

entire office market, has recovered from 7.8% as of Q4 2009 to 4.1% as of Q4 2010.2

While some of the tenant moves could be held back in the short run, the earthquake could

result in a propensity to move into newer and/or larger office premises with higher quake

resistance. Additionally, yields in Japan show a positive spread relative to interest rates. Unlike

the rest of Asia-Pacific, the potential to achieve positive leverage still exists in Japan in the

short term despite leverage below historical levels.

1 http://www.stat.go.jp/data/sekai/03.htm, Ministry of Internal Affairs and Communications (2011) 2 Office Market Report, CBRE (Q4 2010)

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Partners Group believes the most attractive opportunities are in the Tokyo vicinity. Tokyo is

the world’s largest city economy followed by New York and is supported by modest GDP

growth in line with other large city economies as well as favorable demographic developments

expected for the next decade. Tokyo accounts for a third of Japan’s GDP, and is supported by

solid fundamentals. The current market environment creates opportunities to defensively

invest in one of the most transparent and liquid property markets in the world.

Partners Group considers the office and middle income residential sectors to be the most

attractive property types in the Tokyo market. The office sector in Tokyo is supported by

limited supply over the next five years. On the demand side, 23% of corporate tenants

headquartered in Tokyo are reported to be planning new office leases (compared to 24% in

2007).3 Vacancy rates have already started to recover and Partners Group expects that rental

rates for Tokyo offices will follow. The residential sector in Tokyo has historically exhibited very

defensive characteristics. Over the past 10 years, the occupancy rate for residential properties

in Tokyo has moved in a tight range of between 93% and 96% with very stable rents.4

Across the Tokyo market, Partners Group sees attractive deal flow from distressed sellers at

fire-sale prices. Such sellers include private funds facing liquidations, corporates looking to

offload non-core assets, and financially distressed real estate developers. In addition, over

USD 100 billion of loans (bank lending and commercial mortgage-backed securities) will

mature over the next three years.5 As lenders have started to write down their loans, the book

value has begun to close in on the market clearing point, suggesting strong selling potential

that is expected to be realized in late 2011 or 2012. In the office sector, cautious underwriting

is crucial, especially in light of potential for negative rent reversion and tenant defaults.

Nevertheless, this sector offers an opportunity to acquire highly leased stable assets with

strong cash on cash yield over the investment horizon.

3 Survey by Mori Building (December 2010). Includes only office buildings with total floor area of over 10,000 sqm and excludes applications other than office use 4 J-REIT Property Database, ARES (December 2010) 5 Moody’s, Atlas Partners Japan estimate (March 2010)

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Korea: attractive commercial opportunities – access is key

Korea’s economic growth over the past 47 years has been impressive. Per capita GDP was only

USD 100 in 1963 and has grown to over USD 20,000 in 2010 (USD 30,000 in purchasing

power parity terms).6 The Korean economy posted its eighth consecutive quarter of GDP

growth in Q4 2010 after its economy returned to positive growth rates, supported by the

government’s swift and active fiscal spending aimed at bolstering investment and

consumption. Due to the recovery of the Korean economy and strong government leadership,

the Korean real estate market has attracted strong interest from investors.

The real estate market for foreign investors in Korea opened in 1998, and as a result, is still

predominantly held by domestic entities with only 13% in the hands of foreigners.7

Furthermore, the market is characterized by corporate ownership of property. Relationships in

the domestic market, including with Korean conglomerates, are crucial and investors must

have a strong network in order to access attractive investment opportunities.

The majority of investment opportunities have been centered on Seoul which generates over

21% of Korea’s GDP. The total Seoul Metropolitan Area represents approximately 48% of

Korea’s GDP.8 Investments in Korea are predominantly in the commercial segment because the

leasing system in the residential sector is unique (the tenant pays a lump-sum deposit to the

owner for the use of the property with no additional requirement for periodic rent payments).

Seoul's office rental market has historically been steady in contrast to more volatile rental

cycles evident in other markets in the region. Grade A vacancy rates averaged about 3 percent

over the past decade and rents held up even through periods of economic downturn.

To date, only a few international investors have entered Korea’s property markets to develop

modern, high-quality properties. The city of Seoul is currently revitalizing its business districts

with the aim of becoming an Asian business center. As a result, as much as 360,000 sqm of

prime office buildings are expected to come online annually from 2011 to 2014, which is

equivalent to 5% of total prime office stock in Seoul and over twice as much as its average

annual supply for the past six years.

While a number of new office developments will come online over the next three years, there

has been a chronic undersupply of international Class A office space in Seoul as local

developers have not historically built to an international Class A standard in terms of building

efficiency, floor plate sizes, ceiling heights, building infrastructure and technology. As modern

demand prefers quality office space, Partners Group believes that new international grade

developments will be positively received by tenants.

Through its Seoul office, Partners Group has established strong on-the-ground relationships

and is able to access attractive investment opportunities. A recent example is our investment

in the International Finance Center Seoul, a Class A mixed use development project in the

heart of the increasingly popular Yeouido district. Through the secondary market, Partners

Group was able to acquire this opportunity on behalf of its clients at an attractive price from a

distressed seller. The project is on schedule and on budget. Further, pre-leasing is far ahead of

budget, driven by strong demand for Class A office space from multinational corporations.

6 http://ecos.bok.or.kr/EIndex_en.jsp, Bank of Korea (2011) 7 Seoul Office Market Report, Savills (February 2011) 8 http://ecos.bok.or.kr/EIndex_en.jsp, Bank of Korea (2011)

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Singapore and Hong Kong: focus on real estate fundamentals

Singapore and Hong Kong are among the world's most open and dynamic economies and have

both rebounded strongly with robust growth following the downturn in 2009. Singapore and

Hong Kong are island cities with limited land. Due to their space-constrained nature and high

external dependency, these two property markets tend to be more cyclical than others in Asia-

Pacific. The cyclical nature is already evidenced in the rise in property prices since the recent

crisis. For example, Hong Kong’s residential market has overtaken its 2007 peak and the

government is actively trying to counter further price increases by providing more land for

sale.

Exhibit 3: Singapore and Hong Kong are extremely cyclical office markets

Source: CBRE, November 2010

Partners Group believes the most attractive sectors in Singapore and Hong Kong are office and

retail. Undermanaged assets provide opportunities in these markets for value-added

strategies.

Singapore has a population of five million people and is the world's fourth leading financial

center, playing a key role in international trade and finance.9 The city’s recent growth has been

mainly driven by a rapid rebound in manufacturing following a contraction of 1.3% in 2009,

and the annual rate of growth will be a moderate 4.5% in 2011. Supply of new office space in

Singapore is relatively high and 9.8 million sqft of new office supply is expected to come online

through 2013.10

That said, Singapore had the biggest increase in office rents across the Asia-Pacific region in

the third quarter of 2010 and, in USD terms, central business district Class A office rents

9 Department of Statistics Singapore (2011) 10 Urban Redevelopment Authority, Singapore (2011)

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Tokyo Hong Kong South Korea Singapore

May 06 Nov 06 May 07 Nov 07 May 08 Nov 08 May 09 Nov 09 May 10 Nov 10

% change in o

ffice rents

(12 m

onth

s)

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increased by 15.6%. According to a recent report by Hudson11, employers’ expectations to hire

additional staff have risen from 26% in 2009 to 62% in Q4 2010. While the Class B office

sector remains vulnerable as there is a “flight to quality” from tenants, Class A office rents

rebounded strongly and the outlook remains positive, as market sentiment continues to

improve. If demand for space continues to surge, the lack of new office supply beyond 2013

may lead to an increase in Class A rents back to 2007 levels.

Retail sales have been positively impacted by the number of visitors to Singapore, which

exceeded ten million last year. Tourist arrivals are expected to further increase to

approximately 17 million by 2015.12 The retail market is experiencing stable occupancy rates

but approximately 4.0 million sqft of new supply is expected through 2012.13

The office sector in Hong Kong shows positive signs as demand and average rentals have both

increased after a significant correction in 2008 and 2009. Hong Kong is the world's largest IPO

market with a long pipeline of listing candidates. Additionally, multi-national corporations have

begun to hire again. During the fourth quarter of 2010, the overall office vacancy rate was

down to 5.5% and the net effective rents grew by 5.3%. Jones Lang LaSalle forecasts that

office rentals are expected to grow by 13% and 11% in 2011 and 2012, respectively, mainly

driven by strong demand from financial institutions and Mainland Chinese companies, coupled

with limited available supply.14

In the retail sector, the main driver is the increasing number of visitors from China. According

to the Hong Kong Tourism Board, there were approximately 36 million visitors to Hong Kong in

2010, which represents an increase of 22% over 2009.15 In 2010, retail sales grew by 18.5%

on a nominal basis. With a rise in prime retail rents by 4% quarter-over-quarter, the leasing

activity remains strong, especially for prime shops in core locations. New supply is expected to

be limited to two-thirds the average historical net absorption since 2001 and should drive the

vacancy rate down to 2.9% by 2014.

While capital values in Hong Kong and Singapore have already recovered from the recent

downturn, many of the commercial buildings in these markets are aged and undermanaged by

the current landlords. Therefore, Partners Group strongly believes that office and retail

properties in these markets offer potential for value-added strategies such as repositioning or

refurbishment. However, in volatile markets like Hong Kong and Singapore, it is crucial to

focus on real estate fundamentals when underwriting deals rather than betting on potential

rent increases or future cap rate compression.

Foreign investors with a shorter term (three- to five-year) investment horizon can find it

difficult to navigate the cyclicality. To help mitigate the risks and identify attractive

investments, Partners Group employs local specialists while also working with experienced

investment partners, such as Pamfleet, who have been investing in Hong Kong and Singapore

over a number of years.

In a recent transaction, Partners Group acquired a portfolio of assets on behalf of its clients at

a deep discount to intrinsic value. The portfolio is dominated by Asia Square, an international-

quality Class A office development in the heart of Singapore's central business district. Since

acquisition, pre-leasing activities have picked up strongly and the valuation of the property has

increased significantly.

11 Hudson Survey (2011) 12 Singapore Tourism Board (2010) 13 Urban Redevelopment Authority Singapore (2011) 14 Jones Lang LaSalle (Q4 2010) 15 Hong Kong Tourism Board (2010)

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Australia: bridging the gap – issuing junior debt

Australia has recovered well from the global financial crisis and posted a 2.7% GDP growth in

2010.16 Part of the strength was directly attributable to policy stimulus that is gradually being

removed. However, the strong demand for commodities continues to support Australia’s

growth momentum and Australia’s labor market has performed remarkably well.

On the back of these encouraging signs from Australia’s economy, substantial capital

previously on the side-lines is now flowing into what is perceived to be the least risky sector of

real estate – trophy, core properties. It has resulted in numerous bidders on a small number of

transactions causing cap rates to fall below the 7-8% range reflected in older appraisals. Given

the cap rate spread over the risk free rate and current difficulty in finding attractive financing,

leverage may not be accretive.

The appearance of a recovery in the core property markets may mask real distress that

continues to exist in many other segments. Despite a robust banking sector, new credit to real

estate continues to be rationed. A significant number of assets are in foreclosure and it is still

difficult for property owners with mortgages to refinance assets that are leased and cash

flowing. Foreign lenders left with high losses on loan portfolios in the downturn have retreated

from the real estate sector. At the same time, domestic banks have adopted more

conservative lending practices, creating a gap between bank finance and equity.

Despite the flight to perceived quality, Partners Group maintains that the most attractive

opportunities will be in assets that remain capital constrained with a debt recapitalization or

mezzanine investment to fill the gap between bank loans and equity. Junior debt offers the

opportunity to generate 15%+ returns with quality income producing assets and stable cash

flow profiles. Short term mezzanine opportunities are available in the residential sector, higher

yielding but with shorter hold periods.

16 Australian Bureau of Statistics (2011)

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EMERGING ASIA-PACIFIC

India: attractive development opportunities backed by strong fundamentals

With a population of over 1.1 billion people, India is the world’s biggest democracy. Driven

primarily by domestic demand, the economy has been growing over 8% on average since

2003.17 One of the costs of this fast-paced growth has been a persistently high consumer price

inflation, which is probably the biggest macroeconomic risk facing India at this time.

The real estate stock in India’s cities is not sufficient to meet the demand from a strong

urbanization trend. The Indian government thus opened the real estate development sector to

foreign direct investment (“FDI”) in 2005. Official data shows that foreign investors have been

extremely bullish about this sector as FDI in Indian real estate rose from USD 38 million in

2005 to USD 2.8 billion in 2008. Cumulatively, the Indian real estate market has received USD

9.4 billion (as of December 2010) in FDI since 2005.18 Despite the significant FDI, the

urbanization trend across India generates further real estate needs.

According to the McKinsey Global Institute, 250 million people will be added to India’s urban

areas from 2008 to 2030.19 The requirement to house these people in urban areas raises the

need for residential real estate development in the country. While the need for housing is

evident, it is critical to select the right development partner and structure a deal that aligns the

interest of both parties to the timely and on-budget execution of the project. There have been

several instances where local development partner interest was not completely aligned with

the investors and projects have had unforeseen delays and cost over-runs.

With 270 million people expected to be added to working-age population by 2030, and 70% of

net new employment expected to be generated in cities, the need for commercial space is

ever-growing.20 However, it is a difficult territory for FDI investors. The delays in land

acquisition and execution have hurt returns for many investors in commercial development in

India since 2005. The lack of a Real Estate Investment Trust or institutional real estate

investor market creates exit risks for financial investors in the sector.

FDI in real estate development is a young industry in India. While there have been successful

exits in the India private real estate space, foreign investors have had mixed experiences

overall. This is primarily due to investors’ lack of understanding of real estate related risks in

India, which include local partner selection, underwriting of delays in land acquisition and

approvals, structuring investments for downside protection, and exit strategy for non-

residential assets.

Partners Group has been able to understand and mitigate many of the risks described above

by investing with experienced local partners in portfolios that have substantially completed

land acquisition, and have visible exit options at project completion. For instance, in late 2010,

Partners Group invested on behalf of its clients in a ground-up office construction project being

developed by an operator with 15 years of local experience. Partners Group was able to

negotiate an attractive downside protection structure whereby Partners Group would receive a

2x cost multiple even if the portfolio was to be sold at 0.74x of cost. In another example,

Partners Group invested directly in the second phase of a residential project in the National

Capital Region of India in 2011. The first phase is over 90% sold and construction is underway

on the second phase.

17 Handbook of Statistics on Indian Economy, Reserve Bank of India (2010) 18 Ministry of Commerce and Industry, India (2010) 19 India’s Urban Awakening, McKinsey Global Institute (2010) 20 India’s Urban Awakening, McKinsey Global Institute (2010)

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China: corrections ahead – selective investment opportunities

China overtook Japan as the world’s second largest economy in 2010 with China’s nominal GDP

reaching USD 5.9 trillion compared to Japan’s USD 5.5 trillion.21 China has also become the

world’s largest car market, biggest energy consumer and third largest consumer for luxury

goods.

After sharp growth in 2009, China’s residential market started to show signs of slowing in

2010. Over the past few years, land prices for residential real estate have increased by 200-

300% and, in 2009, residential properties in Tier I cities experienced price appreciation of 25-

30%. In 2010, price appreciation slowed to less than 10% (except Guangzhou). This is

primarily due to the efforts of the Chinese government to decelerate the over-heated housing

market. Recent policies include the introduction of property taxes in cities such as Shanghai

and Chongqing. Despite the lower growth, Partners Group expects these markets to undergo

additional, significant pricing level corrections.

Exhibit 4: China’s secondary home price index

J.P. Morgan, Centaline

Contrary to Tier I city housing policies, China’s government has made it a priority to develop

middle class housing in Tier II cities like Chengdu (population 11 million) and Chongqing

(population 32 million); regulatory support includes tax incentives to encourage middle-income

housing development and greater financing opportunities for middle class consumers

purchasing their first home.

On the commercial side, there is a massive amount of new development, especially for Class A

space. In Beijing, for example, 18.9% of existing office market stock is projected to come to

the market over the next 12 months, and the Shanghai office market is expected to double its

existing inventory.22 Similarly, many Tier II cities have followed and a significant amount of

office space will hit the market over the next two years. At the same time, the demand for

21 The Economist (February 17, 2011) 22 Jones Lang LaSalle (2010)

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Class A space in those cities is low as multinational corporations prefer China’s Tier I cities.

The high level of new supply will put pressure on vacancies as well as rents for Class A office

space, especially in Tier II cities.

Partners Group sees the most attractive opportunities in residential investments in Tier II

cities. We expect volumes and prices for residential properties to fall over the next 12 months

as the government is determined to make housing more affordable. Partners Group believes

this will present another compelling entry opportunity in a market that has very strong

fundamentals over the long term. Partners Group is cautious given government cooling

measures but expects to selectively invest in growing Tier II cities.

Partners Group views “build to sell” projects with a two to three year hold as the most

attractive investments and expects to capitalize on Tier II city growth as these cities are better

positioned with higher owner-occupier ratios than Tier I cities. Tier II cities are characterized

by cheaper land and labor costs, less development competition and greater middle-income

residential supply/demand imbalances due in part to less speculative build-up in preceding

years. Negotiating advantageous terms is less challenging in second tier cities, as local

developers are often in need of external capital to fund their projects.

Recently, Partners Group invested on behalf of its clients in a mass market residential

development located in Xuzhou, a Tier II city in north east China, with its investment partner

Gaw Capital. Average sales prices are significantly exceeding the underwritten sales prices and

the project is on-track to deliver returns in excess of five times Partners Group’s cost.

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Vietnam: growth wave – middle class demand for housing

In the past decade, Vietnam, the world's 13th largest country by population with nearly 90

million people, has emerged as one of South East Asia's strongest performers. GDP growth

was approximately 6.8% in 2010, which exceeded the official growth target of 6.5%. Strong

growth came at the expense of double-digit inflation (12.2%) and a depreciating currency. In

February 2011, the USD/VND rate was adjusted by the state bank from 18,932 to 20,693 – a

9.3% devaluation of the official rate.23 With inflationary pressures, a trade imbalance and

currency woes, the government is aware of its need to balance growth with economic stability.

Vietnam’s middle class is rapidly expanding and is expected to grow from 7 million in 2003 to

approximately 25 million in 2013. Household incomes have doubled in the last four years and,

on the back of increasing disposable income, Vietnam’s retail sales for consumer goods and

services grew over 18% in 2010 (excluding the price-rise factor). Official per capita GDP p.a. in

major urban areas is far higher than the national average with approximately USD 2,500 in Ho

Chi Minh City and USD 1,700 in the capital city of Hanoi. In a global study of urban

communities, PricewaterhouseCoopers (“PWC”) projected that Hanoi and Ho Chi Minh City will

be the top two fastest growing economies in the world.24 With anticipated average real GDP

growth of 7% per annum from 2008 to 2025, Hanoi and Ho Chi Minh City top PWC's study of

151 cities around the globe. Compared to other Asian nations, Vietnam has the youngest

demographic profile with approximately 80% of the population under the age of 40 and 72% of

this majority under the age of 24.25

Given the fast growing middle class, there is significant latent residential demand in Ho Chi

Minh City and Hanoi. Robust demand and urban migration are far outpacing supply, and have

created a severe housing shortage in Vietnam’s urban areas, with a significant portion of the

population living in sub-standard accommodations. According to the Ministry of Construction,

28% of the people in Hanoi live in very crowded and very small accommodations with average

living space per capita of 7 to 7.5 sqm.26 As the cities grow, and urban migration and income

rise, demand for housing will continue to increase.

While investing in Vietnam is associated with potential risks, including the recent surge in

inflation and challenges in fiscal and monetary policies, the fundamentals are compelling over

the long term. Overall, demand for real estate in Vietnam is underpinned by rapid urbanization

and compelling demographics. Additionally, the country’s emerging middle class is approaching

the size necessary to generate self-sustaining internal growth and demand in the property

market, particularly the residential sector.

Through a recent acquisition, Partners Group invested on behalf of its clients in two property

portfolios in Vietnam at a significant discount with a top quartile real estate manager. The

transaction offered an opportunity to secure highly visible residential and hospitality assets in

Vietnam. Soon after closing, 162 out of 163 units in a residential property in Ho Chi Minh City

were sold on the back of strong demand for housing. Our partner is currently in discussions

with a buyer for the remaining unit.

23 Economic Intelligence Unit (2011) 24 PricewaterhouseCoopers (2009) 25 Indochina Land (2010) 26 Ministry of Construction Vietnam (2010)

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Partners Group Research Flash April 2011

Asia-Pacific real estate: local approach in a diverse market

14

CONCLUSION

The Asia-Pacific real estate market offers significant opportunities for investment. While not all

countries present attractive market fundamentals, diversity among the region generates

distinctive opportunities driven by various macro-economic and fundamental drivers in several

locations. Strong relationships, best in class partners, deep regional experience and local

offices are critical to successfully take advantage of opportunities over the medium to long

term. It is especially important to partner with experienced operators and align interests.

Flexible investment structures can be engaged to improve the risk return profile of the

investment. Partners Group has completed numerous transactions in the region and is well

positioned to continue actively investing in Asia-Pacific through well-vetted, selective

transactions.

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Partners Group Research Flash April 2011

Contact

15

Client contact:

Kathrin Schulthess

Investment Solutions

Phone: +41 41 768 85 81

Email: [email protected]

Media relations contact:

Dr. Anna Hollmann

Phone: +41 41 768 83 72

E-mail: [email protected]

www.partnersgroup.com

ZUG | SAN FRANCISCO | NEW YORK | SAO PAULO | LONDON | GUERNSEY | LUXEMBOURG | MUNICH | DUBAI | SINGAPORE | BEIJING | SEOUL | TOKYO | SYDNEY

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Partners Group Research Flash April 2011

Disclaimer

16

This material has been prepared solely for purposes of illustration and discussion. Under no circumstances should the information contained herein be used or considered as an offer to sell, or solicitation of an offer to buy any security. Any security offering is subject to certain investor eligibility criteria as detailed in the applicable offering documents. The information contained herein is confidential and may not be reproduced or circulated in whole or in part. The information is in summary form for convenience of presentation, it is not complete and it should not be relied upon as such.

All information, including performance information, has been prepared in good faith; however Partners Group makes no representation or warranty express or implied, as to the accuracy or completeness of the information, and nothing herein shall be relied upon as a promise or representation as to past or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions, models and/or other analysis of Partners Group (which may not necessarily be described herein), no representation or warranty is made as to the reasonableness of any such assumptions, models or analysis. Any charts which represent the composition of a portfolio of private markets investments serve as guidance only and are not intended to be an assurance of the actual allocation of private markets investments. The information set forth herein was gathered from various sources which Partners Group believes, but does not guarantee, to be reliable. Unless stated otherwise, any opinions expressed herein are current as of the date hereof and are subject to change at any time. All sources which have not been otherwise credited have derived from Partners Group.